July 27, 2010

A meeting of the
Governance Committee was held via videoconference at the
St. Lawrence-FDR Power Project, 830 Barnhart Island Rd., Massena, New York; SUNY-Jefferson
Community College, 1220 Coffeen St., Watertown, New York and 123 Main Street,
White Plains, New York at approximately 10:00 a.m.

The following Members of the Governance Committee were present:

Trustee Eugene L.
Nicandri, Chairperson

Trustee D. Patrick
Curley

Vice Chairman Jonathan Foster was excused from attending.

Also in attendance were:

Gil Quiniones Chief Operating
Officer

Terryl Brown Executive Vice
President and General Counsel

Joan Tursi
Senior Vice President – Corporate Support Services

Joseph Gryzlo
Vice President of Labor Relations and Chief Ethics and

Compliance Officer

Patricia
Leto Vice President - Procurement

Lesly
Pardo Vice President – Internal Audit

Karen
Pasquale Vice President – Enterprise Shared Services

Karen
Delince Corporate Secretary

Angela
Graves Deputy Corporate Secretary

Dennis
Eccleston Chief Information Officer

Mark
O’Connor Director – Real Estate

Michael Saltzman
Director – Media Relations

Shannon
Sramek Senior Treasury Analyst

Louis
Stanco Senior Fuel Planner and Buyer

Mary Jean
Frank Associate Corporate Secretary

Lorna
Johnson Assistant Corporate Secretary

Louise
Nestler Assistant Ethics Officer

Sheila
Baughman Senior Secretary, Corporate Secretary’s Office

1.Minutes of the Regular Meeting
of February 22, 2010

The minutes of the Committee’s
meeting of February 22, 2010 were adopted.

·The overall value of these
contracts was more than $2.2 billion, with $171 million in contract expenditures
for the first half of 2010.

·45% of the contracts were for the
purchase of equipment and commodities.

·30% of the contracts were for
services such as temporary personnel, maintenance or repair.

·16% of the contracts were for
personal service contracts such as engineering and legal services.

·9% of the contracts were for
construction work.

·While approximately 62% of the
total number of non-fuel contracts thus far in 2010 covered by the Report
exceeded $25,000, the total value of those contracts was approximately 99.6% of
the total non-fuel expenditures.

·Based on the total value of the
contracts included in the summary, approximately 96% of the total dollars
expended (excluding fuels and corporate finance) were for contracts that were
competitively bid.

·In terms of the number of
contracts processed, approximately 77% of the contracts were competitively bid,
while 23% were sole-source awards, including the purchase of highly specialized
spare parts and services from original equipment manufacturers and procurement
of services on an emergency basis and from proprietary sources.

Ms. Karen Pasquale said that on March 31, 2010,
the “2009 Annual Report of Procurement Contracts” was certified by the
Authority’s Chief Financial Officer and submitted to the New York State
Comptroller’s Public Authorities Reporting Information System (PARIS) in
accordance with Section 2879 of the New York State Public Authorities Law.

2.2 Disposal of Personal Property

During the reporting period, no
Personal Property Disposal transactions greater than $5,000 in value were
conducted by or on behalf of the Property Disposal Coordinators. However, the
Authority participated in one auction conducted by the firm JJ Kane Auctioneers
on April 24, 2010 on behalf of Fleet Operations. Such auction resulted in the
sale of 75 units, comprising light-duty vehicles, heavy-duty trucks and special
equipment. Of this number, 18 were greater than $5,000 in value. The total
auction price for these 18 units was $221,200, with the net price totaling
$210,639.50 after commission and transportation costs were deducted.

The Authority also participated in
an online auction on December 22, 2009 handled by the firm Auctions
International. Such auction resulted in the sale of three additional Fleet
units, of which one was greater than $5,000 in value. The auction price for
this unit was $6,999, with the net price totaling $6,991 after a fee was
deducted. The proceeds of this auction were received by the Authority in 2010.

Ms. Tursi said that the Authority would be
participating in another fleet auction sponsored by National Grid on August 28.

2.3 Acquisition andDisposal of Real Property

The following easements were acquired in the
first half of 2010:

-Easement to Cumberland Head
– The Authority finalized a long-term easement for the placement, operation, and
maintenance of the Authority’s 115 kV Plattsburgh-to-Vermont (PV-20)
transmission line that crosses Lake Champlain from Cumberland Head in Clinton
County, New York to Vermont. This important transmission line provides power to
the New England states from the St. Lawrence Power Project and is in accordance
with the Federal Energy Regulatory Commission operating license.

-Sewer easements in support of
new warehouse – Real Estate has
acquired easements for utilities across lands of Niagara University and the New
York State Department of Transportation. These utilities, including a sewer
line, will serve the new warehouse currently being constructed, as well as
future expansion by Niagara University.

-Holtsville fence easement
– The Authority acquired an easement from National Grid for the construction of
a fence grounding system located on the perimeter of the Holtsville Power Plant
on Long Island. This facility is to mitigate stray current from becoming a
shock potential on the security fence surrounding the Holtsville plant. In
addition, it mitigates any spark hazard from stray current.

Danger tree permits acquired/land use permits
issued – The Authority acquired 54
danger tree permits during the first half of the year. These rights allow the
Authority to eliminate dangerous vegetation, which is critical to the safe
operation of the New York State transmission grid and to North American Electric
Reliability Corporation (“NERC”) critical infrastructure compliance . In
addition, six permits for use of the Authority’s easement areas were issued.
These permits, with their accompanying insurance requirements, assure that use
of the Authority’s easements is consistent with the operation of its
transmission lines.

Leasing

The headquarters building at 123 Main Street,
White Plains is essentially 100% leased. During this reporting period, the
Authority entered into a five-year lease extension with a long-term tenant,
Hodagaya Chemical, for space on the 9th floor of the building at an
annual rental of $69,817.

The Authority renewed its office and hangar
lease at the Westchester County Airport for three additional years at an annual
rental cost of $82,044.

The Authority renewed and extended its office
lease at 30 South Pearl Street, Albany through approximately July 1, 2015 at an
annual rental cost of $252,400.

The Authority entered into a Modification and
Partial Surrender Agreement with 501 7th Avenue Associates that
surrenders approximately 40,000 rentable square feet that the Authority had been
subleasing to the New York State Office of General Services. This partial
surrender will save the Authority approximately $477,000. In addition, the
Authority extended its lease in much smaller space with the same Landlord
through August 31, 2011 at an annual rental cost of $276,622.60.

St. Lawrence Lands Program

All of the conveyances to municipalities under
this program, which is part of the St. Lawrence Relicensing Settlement
Agreement, have been completed. This left approximately 599 acres of removed
lands to be conveyed, 503 of which have been conveyed. During the first half of
the year, 52 deeds were finalized and recorded in the County Clerk’s office.
Another 50 deeds were transmitted for the landowners’ executive, of which 18
remain unsigned. In addition, 58 deeds are awaiting final payment and
acceptance of delivery by the landowners. To date, the Authority has received
$666,268 for the approximately 332 private parcels conveyed.

Mr. O’Connor said that the Clements v.
NYPA lawsuit was dismissed about three weeks
ago, but that the plaintiff had filed a motion to reargue which would be heard
on August 13, 2010.
2.4 Supplier Diversity Program Activities

·Through June 30, 2010, the
Authority awarded $16.9 million (or 11.2% of its reportable expenditures) on
contracts with certified M/WBEs, representing both direct contracts and
subcontracts, including construction-related work.

·The Authority’s annual goal for
the use of New York State Certified Minority/Women-Owned Businesses (“M/WBEs”)
is 6% of its non-specialty procurements. The Authority does not include
specialty procurements such as turbine runners, transformers, circuit breakers,
other large electrical equipment, natural gas and other specialized goods and
services since there are no M/WBEs available to provide these goods and
services.

·In compliance with the New York
State Executive Law, the Authority has developed and is expected to go live with
an online utilization program for construction-related contracts by the end of
July. The Executive Law requires construction contractors with contracts
greater than $100,000 to submit their M/WBE subcontractor utilization plans for
posting on the Authority’s Web site. Additionally, in compliance with another
New York State law, the Authority is currently researching both locally and
nationally information for development and implementation of a Mentor Protégé
program. This law requires State agencies, departments or authorities that let
more than $10 million in construction contracts to establish mentor-protégé
programs to enable the development and success of small M/WBEs. This will be a
significant effort.

·The Authority continues an active
outreach program with various M/WBE organizations and trade associations. The
Authority hosted its 20th Annual Purchasing Exchange on June 17, 2010
in the White Plains Office. The event was an overwhelming success attended by
more than 300 representatives of M/WBEs who met with representatives of
approximately 41 New York State, federal, New York City and local government
entities, as well as private companies.

Ms. Leto said that the Authority is
not likely to achieve the level of M/WBE participation in its procurement
activity it did last year, but that last year’s level was an anomaly due to
M/WBE participation in construction contracts.

Committee Chairman Nicandri asked
that the M/WBE summary be forwarded to Trustee Mark O’Luck in view of his
interest in and questions about the M/WBE program. Ms. Leto replied that
Trustee O’Luck has been in frequent contact with Ms. Debra White, the Manager of
the Supplier Diversity Program.

2.5 Inventory Statistics

As of June 30, 2010, overall
inventory levels at all of the Authority’s operating facilities totaled $89.38
million, compared to a year-end total in 2009 of $85.74 million. The 2010
year-to-date total includes additional spare parts associated with the
Blenheim-Gilboa Life Extension and Modernization and Switchyard upgrades and
additional stock requirements in preparation for the Flynn 2011 outage.

Construction of the new Niagara
warehouse began in March 2010 and is proceeding on schedule. The new warehouse
is designed to optimize the use of volume with modern racking and storage
systems whenever possible. Construction is expected to be complete by July
2011.

Ms. Leto said that she would send
the Committee members some photographs of the construction progress.

As of June 30, 2010

Facility

2010

2009

2008

Niagara

18,207,845

*18,135,587

20,110,763

St. Lawrence

11,604,637

12,027,477

12,358,850

Blenheim-Gilboa

**7,381,124

5,773,422

5,767,508

Clark Energy
Center

4,371,045

4,155,826

4,099,634

Poletti
Project

14,648,094

14,108,193

14,046,533

Flynn Project

***13,080,266

12,049,007

12,127,802

500 MW Project

20,088,622

19,496,314

19,197,422

Total Stock Value

$89,381,633

$85,745,826

$ 87,708,512

2.6 Fossil Fuels Activity

·From January 1 through June 30,
2010, a total of $111 million was spent on fuel purchases -- $110 million for
natural gas and related costs (e.g., interstate transport and local GT&B) and
less than $1 million for fuel oil costs/charges (e.g., oil storage/throughput
and inspection services). These fuel purchases were carried out through 25
contracts for natural gas and fuel oil, as well as pipeline transportation and
related services. All fuel purchases were competitively bid.

·The price of natural gas is about
$5 per dekatherm (the equivalent of 1 million Btus) (New York city-gate) and
$4.61 per dekatherm (Henry Hub production area).

·Crude oil is currently trading at
$79 a barrel, with the price of the oil used at Flynn at $86 a barrel and the
jet/kero used at the 500 MW plant at $93 a barrel.

The “Corporate Finance Addendum”
for the Annual Report of Procurement Contracts identifies non-procurement items
paid during the year for unique and specialized financial services requiring a
broad depth of knowledge and expertise and are therefore provided by a limited
group of firms. The non-procurement items include trustees and paying agent
services, commercial paper remarketing services, escrow agent services and fees
paid for revolving credit agreements supporting the Authority’s Variable Rate
Debt Program. Through June 30, 2010, the total amount for these items was
$773,000, of which $383,000 (or roughly 50%) was associated with the Authority’s
revolving credit agreements.

In response to a question from
Committee Chairman Nicandri, Ms. Shannon Sramek said that the fees reported in
the Corporate Finance Addendum are strictly related to corporate finance.
However, they do include counterparty legal fees, passed through to the
Authority, associated with work on the Authority’s Commercial Paper Revolving
Credit Agreement.

Mr. Joseph Gryzlo said that this
is the first report to the Governance Committee that includes information about
the Authority’s Compliance program, as per the revised Governance Committee
Charter.

Ethics

Mr. Gryzlo provided an overview of the Ethics
Office’s key initiatives. There have been 62 ethics inquiries to date in 2010.
He said that the principal substantive issues arising under the ethics laws
and/or the Authority’s Code of Conduct fall into the following categories:

Appearance of
impropriety/conflicts of interest 9

Gifts
12

Outside
activities
7

Outside
employment 15

Post-employment
7

Unwarranted
privilege 5

Allegations
2

Advertising
1

Political
activities
1

Securities
1

Financial
Disclosure 1

Referrals
1

Mr. Gryzlo said that he views the
increase in inquiries and cases, and especially those from generating and
transmission facilities, as positive and a direct outgrowth of the new Code of
Conduct (which for the first time covers bargaining unit employees).

One case that was reported through
the Authority’s toll-free hotline involved an employee’s claim about his
supervisor’s manner of communicating with him about work assignments and time
slips. An investigation led to facilitation of a meeting by Human Resources
with the supervisor and the employee. Supervisory roles and responsibilities
were reaffirmed, as were the expectations for the employee to cooperate with
work assignments and procedures and the case was closed.

The Office of the State Inspector
General referred an allegation concerning a headquarters employee who was
alleged to have misused Authority phone and Information Technology assets. An
investigation found the allegation unsubstantiated, which was reported back to
the Office of the State Inspector General.

May 17th was the filing
deadline for employees required to file an annual Financial Disclosure statement
with the Commission on Public Integrity. As in past years, the Authority used
an internal tracking system to ensure that all affected employees and Trustees
met their statutory obligation to file a timely report. Several individuals
requested extensions of the deadline.

Compliance

The Authority has undertaken a
comprehensive review of its compliance with NERC Standards, which were developed
to ensure the reliable operation of the bulk power system. There are
approximately 100 Standards that incorporate 1,000+ sub-requirements. The
Technical Compliance Group within the Power Supply Business Unit is leading
preparations for an expected 2011 reliability audit by the Northeast Power
Coordinating Council (“NPCC”), the regional entity charged with the enforcement
of applicable NERC standards. A multi-departmental team of staff from Corporate
Compliance, the Law Department and Technical Compliance has been formed to
manage the process, which is a major undertaking.

The Authority has submitted 11 self
reports of potential violations to NPCC during 2010, which are at various stages
of completion. NERC and NPCC encourage self-reporting as a component of a
viable and robust compliance program and as a means to mitigate penalties.

Annual Federal Energy Regulatory
Commission (“FERC”) Standards of Conduct training was provided in July to those
employees who engage in transmission and power marketing functions. The
training reinforces FERC rules, including those designed to ensure that the
Authority treats its customers on a non-discriminatory basis and without undue
preferences.

A discussion ensued among the
Committee members and Ms. Terryl Brown about the possible need to develop a
policy for dealing with correspondence received by the Trustees urging them to
approve certain power allocations.

Ms. Brown also briefed the
Committee about a lawsuit filed the previous day against the Authority and
Richard Kessel challenging the funds being given by government agencies to the
Western New York Harbor Redevelopment Corporation.

4. Next Meeting

The next regular meeting of the
Governance Committee will be held on October 26, 2010 at 9:00 a.m. On motion
made and seconded, the meeting was adjourned at approximately10:50 a.m.